• GAAP Net Loss (Q4 2024): $10.7 million or $0.20 per common share.
• Distributable Earnings Loss (Q4 2024): $8.3 million or $0.15 per common share.
• Realized Losses (Q4 2024): $18 million or $0.33 per share.
• GAAP Net Loss (Full Year 2024): $35 million or $0.64 per common share.
• Distributable Earnings Loss (Full Year 2024): $44.6 million or $0.82 per share.
• Loan Repayments (Q4 2024): $147 million.
• Loan Repayments (Full Year 2024): $350 million, nearly double compared to 2023.
• Reduction in Outstanding Borrowings (Full Year 2024): $444 million or 27% reduction.
• Net-Debt-to-Equity Ratio (Year-End 2024): 1.6 times, 16% lower than year-end 2023.
• Cash Balance: Represents approximately 40% of the current market value of the stock.
• Quarterly Dividend: Adjusted to $0.15 per share.
• CECL Reserve (Year-End 2024): Approximately $145 million, representing 8.5% of total outstanding principal balance.
• Annualized Dividend Yield (February 10, 2025): Above 10% based on the new dividend.

• Warning! GuruFocus has detected 4 Warning Signs with ACRE.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ares Commercial Real Estate Corp (NYSE:ACRE) reduced its risk-rated 4 and 5 loans by approximately 34% or $182 million in 2024, improving the overall quality of its portfolio.
• The company collected $350 million in repayments for the full year 2024, nearly double compared to 2023, indicating strong repayment activity.
• ACRE reduced its office exposure, including REOs, by $151 million, representing an 18% decline year-over-year.
• The company enhanced its balance sheet flexibility by reducing outstanding borrowings by $444 million or 27% for the full year 2024.
• ACRE's cash balance now represents approximately 40% of the current market value of the stock, providing significant liquidity for future opportunities.

Negative Points

• Ares Commercial Real Estate Corp (NYSE:ACRE) reported a GAAP net loss of $35 million or $0.64 per common share for the full year 2024.
• The company experienced realized losses of $18 million in the fourth quarter of 2024, impacting distributable earnings.
• ACRE's outstanding principal balance of loans with risk ratings of 4 or 5 increased by 12% or $37 million in the fourth quarter.
• The company had to fully write off an $18 million subordinated loan collateralized by an office property in New Jersey.
• ACRE's decision to maintain higher liquidity and lower leverage levels has impacted current earnings, leading to a reduction in quarterly dividends to $0.15 per share.

Q & A Highlights

Q: Can you provide insights into the timing and impact of repayments, deal activity, and realized losses for 2025? A: Bryan Donohoe, CEO, explained that the pace of market recovery accelerated towards the end of 2024, and they expect to maintain this pace in the first half of 2025. The focus remains on reducing risk-rated 4 and 5 loans, with capital flows being positive. The company aims to continue reducing these loans to improve their portfolio allocation.

Q: What environment is needed to increase the pace of originations and stabilize leverage levels? A: Bryan Donohoe, CEO, stated that reducing risk-rated 4 and 5 loans will be key to increasing originations. The company has been active in other non-ACRE vehicles, indicating readiness to participate in market opportunities. CFO Jeffrey Gonzales added that the focus remains on resolving underperforming loans before seeking accretive opportunities.

Q: Can you discuss the Boston Life Science deal and its current status? A: Bryan Donohoe, CEO, noted that the business plan for the Boston Life Science asset has shifted from full life science use to traditional office use due to a supply glut. This change impacts tenant improvement allowances and rents. The situation remains fluid, and they are in active dialogue with the borrower. CFO Jeffrey Gonzales mentioned that reserves on the asset were increased this quarter.

Q: What are your thoughts on the multi-family sector's performance and its outlook given interest rate changes? A: Bryan Donohoe, CEO, highlighted that multi-family fundamentals, such as absorption and rent growth, have been strong. The rate rise has muted transaction volumes but hasn't significantly impacted credit. The supply of new apartments is falling, which supports positive fundamentals. The company feels well-protected in the capital structure.

Q: What are your plans regarding CLO issuance in 2025, and how does it fit into your strategy? A: Bryan Donohoe, CEO, mentioned that CLO issuance is considered opportunistic for terming out leverage. The company sees competitive pricing from warehouse lenders and views CLOs as a nice-to-have rather than a must-have. CFO Jeffrey Gonzales added that warehouse lenders are currently the most attractive financing option.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.